6 Tips for Securing the Best Mortgage Rate

If you’re in the market for a mortgage, chances are you’ve been instructed to shop around for the best rates. But just because you’ve been told to shop around doesn’t mean you know how. After you organized your financial information and decide which loan is best for you, follow these six steps to make sure you find the best mortgage rate available.

Establish a Baseline

Get a referral from someone you trust and contact that lender to obtain your credit score and discuss your loan options. Your first lender can help you compare Federal Housing Administration and conventional financing, as well as various loan terms so you can make an informed decision on which loan program and term you want before you contact other lenders.

Contact a Mix of Financial Institutions

Interest rates fluctuate constantly for a variety of reasons, including the occasional promotion of a particular loan product by a financial institution. For example, some lenders who are eager to generate more purchase loans might offer the best mortgage rates for homebuyers rather than refinancing homeowners.  Sometimes a credit union or bank will introduce a new loan product and offer better mortgage rates to entice borrowers.

 Know When you Want to Close

The length of your lock-in period will impact your mortgage rate, so discuss your target close date with each lender and ask what they charge for different loan-lock periods. Make sure you tell the lender when you expect the closing to be, because you want to lock in the interest rate for the right length of time.

Ask About Fees

The various fees associated with a loan are one reason you shouldn’t comparison shop based only on the advertised rate. Sometimes an advertised rate can be lower than all the rest because it doesn’t include the fees associated with it. Some lenders blend all their fees into a loan-preparation fee, while others separate them out, so be sure to ask for the total amount it will cost to close the loan. Generally, a mortgage with higher fees should have a lower interest rate.

Should you Pay Points?

One of the largest fees by far can be the points attached to a particular loan. Each point is equal to 1% of your loan amount. If you intend to stay in your home for the long term, such as 10 years or more, you may want to pay points to keep your interest rate as low as possible for the life of your loan. If you plan to sell in a few years, paying a lot of cash upfront to pay points may not be worth it.  A lender can show you the difference in interest and monthly payments in order to decide whether or not it’s worth it to pay points.

Call Lenders on the Same Day

Mortgage rates fluctuate constantly, so you should call lenders as close to the same time as possible on the same day to compare the best mortgage rates.  If possible, call within the same time frame, because a bond rally could mean that mortgage rates have dropped dramatically from the morning to the afternoon.You need to make sure you discuss with each lender how the loan will be structured in terms of whether you are paying points or not.